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What is a personal loan and how does it work?

A personal loan is an unsecured loan typically from $1,000 – $100,000 with personal loan interest rates that are fixed or variable. The best personal loans can be used to consolidate credit card debt or make a large purchase. When borrowers ask “what is a personal loan?” the best personal loans are very simple and easy to understand.You receive a lump-sum payment of the amount you borrow, and then you pay back the personal loan in monthly installment payments. The typical repayment period for the best personal loans are one to five years, although some personal loan companies may allow for shorter or longer time periods.

For quick personal loans, you can receive your personal loan funds as early as the next business day. Quick personal loans can help you secure money for emergencies, funerals, car repair, home repair or other situations when you need money fast.

In terms of personal loan interest rates, the best personal loans are based on your credit profile. Personal loan companies want to lend to responsible borrowers with a good to strong credit profile who have stable, recurring income and low debt-to-income (such as less than 30%). The lower the personal loan interest rates, the less amount of interest that you will have to pay. This means that the best personal loan interest rates can help you save money.

For personal loan interest rates, personal loan companies typically let you choose a fixed interest rate or a variable interest rate. Fixed interest rates mean that the personal loan interest rates do not change over the life of your personal loan. Variable interest rates mean that the personal loan interest rates do change over the life of your personal loan based on movements in underlying benchmark interest rates.

When borrowers ask “what is a personal loan?” they also ask what the term “unsecured” means.The term “unsecured” means that there is no underlying collateral attached to the loan. If you default on unsecured personal loans, then the lender can collect on the unsecured personal loan per the terms and conditions of the loan agreement. As a result, personal loan interest rates are higher than the interest rates on a secured loan such as a mortgage because the lender is assuming more risk.

In contrast, if you borrow a mortgage for your house, your mortgage is a “secured” loan and your home is the collateral. If you default on your mortgage, your lender will then own your home. When you want to borrow a personal loan, you also may ask where to get a personal loan. If you want to know where to get a personal loan, the answer is easy. The best personal loans come from personal loan companies such as online lenders, banks and credit unions. You can apply online, check for interest rate for free and complete the application in minutes.

You can use Make Lemonade and its free comparison tools to compare the best personal loans and the best personal loan companies for your specific needs.

When evaluating personal loan companies, here are some important questions to understand from the personal loan companies:

What is the interest rate?

What is the loan term?

What is the monthly payment?

For personal loans interest rates, will they be fixed or variable?

What is the origination fee?

Are there late payment fees?

What is a personal loan used for?

The best personal loans can be used for just about any reason.

Personal loan companies will lend you money for many different uses:

To consolidate credit card debt

Medical expenses

Home improvement

Home repair

Emergencies

Moving expenses

Engagement ring

Wedding

Honeymoon

New baby expenses

Funeral

Vacation

Automobiles

Any other reason that you need money

When borrowers ask what is a personal and where to get a personal loan, the best personal loans can really be used for anything.

The top reason for the best personal loans is credit card debt consolidation. When you consolidate credit card debt, for example, you combine all your existing credit card debt into one loan.This personal loan has a lower interest rate than your credit card debt, which saves you money. Plus, you can make one monthly payment instead of multiple monthly payments. The goal is to pay off your debt more quickly with personal loan interest rates that are lower than credit card interest rates.

For example, let’s assume that you have $20,000 of credit card debt at 15% interest. Based on your credit score and other factors, let’s assume that you could obtain personal loan interest rates from several personal loan companies for 7%. This means that credit card consolidation could help you cut your interest payments by more than 50%.

For quick personal loans, other uses for the best personal loans include medical expenses, emergencies, home repair or home improvement. Whether you need help paying medical bills or need money for home renovations, personal loan companies are flexible based on your needs.

So when you ask where to get a personal loan that meets your needs, personal loan companies will help provide access to the funds you need. Online personal loan companies provide excellent access to quick personal loans for emergencies, for example, if you need money fast.

Therefore, a borrower with good to strong credit can qualify for the best personal loans with low personal loan interest rates for just about any reason.

What are the key benefits of a personal loan?

We already covered “what is a personal loan” so now let’s jump into the benefits.The best personal loans offer several key benefits.

1. The Best Personal Loans Are Unsecured

First, the best personal loans are unsecured, which means if you default on a personal loan, you do not have to pledge any other assets like your home to get the money you need.

Second, the best personal loans usually have lower interest rates than credit cards, particularly if you have good credit. That means you save more money with personal loan interest rates when they are lower than credit card interest rates.

For example, a typical APR for a credit card is 15%. If you have good to strong credit, you may be able to qualify for personal loan interest rates of 6%. Those savings can add up, particularly for large purchases or life events like an engagement ring, wedding or honeymoon.

3. Personal Loan Companies Are Flexible

Third, the best personal loans can be used for just about anything. From credit card consolidation and medical bills to engagement rings and weddings, personal loan companies are flexible for your needs. You even use a personal loan to start a new business, or help fund your current business.

4. The Best Personal Loans Can Be Used To Consolidate Debt

Fourth, credit card consolidation is an excellent strategy for the best personal loans. You may qualify for lower personal loan interest rates if you have good credit. Personal loan companies may be able to help you cut your credit card interest rate in half with a personal loan.

5. Quick Personal Loans Means Faster Access To Money

Fifth, if you want to apply for quick personal loans, the process is simple. In terms of where to get a personal loan, you can compare the best personal loan companies on Make Lemonade and then apply directly online. With some personal loan companies, you can receive your money in as fast as 24 hours.

Is a personal loan right for you?

The best personal loans are right for you if they meet your specific needs. When we covered “what is a personal loan” we said that personal loans can help virtually any use. If you want to consolidate credit card debt, pay medical bills, get money for emergencies, or make home repairs, then the best personal loans can meet your needs.

Similarly, the personal loan companies can help with major life events such as paying for an engagement ring, wedding, honeymoon or new baby expenses. Therefore, personal loan companies are flexible for your specific needs for personal loans and you can borrow money for virtually any reason.

When borrowers ask where to get a personal loan, there are several options such as online personal loan companies. If you are looking for money fast for an emergency, funeral, home repair or other important financial decision, you can access quick personal loans through online personal loan companies.

What documents do you need to apply for a personal loan?

When you apply for a personal loan, personal loan companies will require several documents. While the requirements vary by lender, most personal loan companies enable you to submit the documentation online. This is very convenient for borrowers who want to know where to get a personal loan without the hassle of meeting with a loan officer at a bank, for example.

Here is some of the information you will likely need to apply for personal loans:

Driver’s license, Social Security Card or passport

Social Security Number

Proof of income such as a pay stub

Proof of address (e.g., utility bill or copy of your lease agreement

Gross income

Other debt

Monthly expenses

Previous address

Some personal loan companies may ask for more information, but these are typically the minimum requirements.

What is the process to apply for a personal loan?

Applying for a personal loan is a simple process. Once you have determined that a personal loan is right for you, here is how to apply for a personal loan in 5 easy steps.

1. Compare personal loan rates: You don’t have to look far to know where to get a personal loan. You can use Make Lemonade’s free comparison tools to find the best personal loan rates for your personal loan. With most online personal loan companies, you can learn your new personal loan rates in just a few minutes for free and with no impact to your credit score.

2. Check your credit score: Speaking of credit score, the best personal loan companies want to lend to responsible borrowers with a track record of financial responsibility, good credit and stable income. Therefore, it is important you know your credit score. The higher your credit score, the higher your chance of approval and the higher change of getting the best personal loan rates.

3. Gather key documents: Personal loan companies will require several documents as part of the personal loans application process.You will have to provide a few documents, such as pay stubs for proof of income, your driver’s license number and Social Security number.

4. Apply online: You can apply for personal loans online directly through Make Lemonade through one or more of our partners. Use our personal loan comparison table to find the best personal loans and best personal loan companies for you.

5. Get your decision: Most personal loan companies will provide you with a decision in minutes. The good news is that most personal loan companies will send you the money within a few days, which is ideal for quick personal loans.

How do you get approved for a personal loan?

To get approved for the best personal loans, there are several steps that you can take. Personal loan companies want to lend to responsible borrowers with good to strong credit. These personal loan companies want to ensure that you can pay back the personal loans in full. If you have good to strong credit, you may qualify for the best personal loan interest rates.

If you do not have good credit, you may be able to use a qualified, creditworthy cosigner. A cosigner who has good credit can sign for the personal loan with you and assume equal financial responsibility.

Personal loan companies may also look at other criteria such as your income and your other debt. The higher income and stronger credit you have, the more likely you will get the best personal loan rates. Each of the personal loan companies use different evaluation criteria. However, online personal loan companies tend to be most flexible with personal loans even if you do not have good credit.

Can a personal loan raise your credit score?

The best personal loans can help you increase your credit score. Credit bureaus, the companies responsible for your credit score, analyze various criteria to determine your credit score. One metric are the types of debt that you have. If you only have credit card debt, having a personal loan can offer diversity of the types of debt that you have.

For example, credit cards are revolving credit, which is one type of debt. Unlike credit cards, personal loans are installment debt. This means that you pay off the same amount each month.

Therefore, having a personal loan can help diversify your credit and raise your credit score.

Of course, taking out a personal loan simply to raise your credit score is not necessarily a wise decision. However, if you have to choose between credit card debt and a personal loan, the best personal loans may offer better personal loan interest rates than credit card debt interest rates.

What is a peer-to-peer personal loan?

A peer-to-peer loan, or P2P lending, is a personal loan that is funded by another individual or investor, rather than a financial institution. Want to know where to get a personal loan such a a peer-to-peer loan? Peer-to-peer personal loan companies are online platforms that match borrowers and lenders together. With P2P lending, individuals can invest in personal loans, and essentially lend you money on the online platform of the personal loan companies.

Many of the top personal loan companies use peer-to-peer lending, and have the best reputations for personal loan companies with the best personal loans.

For quick personal loans, peer-to-peer lending platforms can be a good option, as can personal loan companies who lend directly.

What is the difference between a secured loan and an unsecured loan?

A secured loan means that you as the borrower have to pledge collateral to borrow money. For a personal loan, this means that personal loan companies would ask you to pledge an asset with equal value for the amount of your personal loan. Personal loan companies want to minimize their risk in case you do not pay back your personal loan.

Unsecured personal loans are the more common type of personal loans. Unsecured personal loans do not require any collateral, so personal loan companies take more risk.

So, if you ask where to get a personal loan, you are better off borrowing an unsecured personal loan because you don’t have to pledge any collateral. Most personal loan companies, including online personal loan companies, deal with unsecured personal loans.